(Bloomberg) -- The yen fell to a record low against the franc amid the growing monetary policy divergence between Japan and Switzerland, with the Swiss National Bank announcing the latest rate hike Thursday in a tightening cycle that began more than a year ago. 

In earlier trading, the Japanese currency dropped to about 159.22 per franc, surpassing the previous low seen in 1979. The yen on Thursday also touched a fresh year-to-date low of 142.46 per dollar, its weakest level since November, following broad gains in the greenback. 

The Swiss National Bank removed negative rates last year and raised rates once more to 1.75% as expected on Thursday, while the Bank of Japan left its ultra-loose monetary policy unchanged last week. Although the SNB hasn’t raised rates to levels reached by the Federal Reserve and European Central Bank, it’s ratcheted up the benchmark 250 basis points since liftoff in early 2022. 

“The monetary policy divergence between Japanese and European central banks is widening as the BOJ is more dovish than previously expected while European counterparts seem to raise their rates more than expected before,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. in Tokyo. “European currencies are getting stronger against the yen and it is possible this trend will further accelerate.”

Trade is also proving to be a drag for the yen, itself a traditional currency haven, with Japan posting a deficit for a 19th straight month in May. Switzerland’s trade balance is a surplus. 

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BOJ Governor Kazuo Ueda said Wednesday the bank will persistently continue with monetary easing to achieve its 2% price target in a sustainable and stable manner, accompanied by wage increases. 

His continued dovish tone has also weighed on the yen against other currencies, sending it to the lowest since 2008 against the euro and the weakest in more than seven months versus the dollar. 

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Japanese officials, including Finance Minister Shunichi Suzuki, have warned they are watching currency moves closely and stand ready to act if needed, as they did late last year. Then, the yen weakening toward 146 per dollar triggered Japan’s first intervention to prop up the currency since 1998.

The weak yen “will only be turned around by either a BOJ policy shift, or a turn lower in US yields,” wrote Societe Generale strategist Kit Juckes. “Our economists expect the BOJ will act in July on YCC and our rates strategists think a turn lower in US yields is close by too, but until that happens, frustration will remain.”

--With assistance from Carter Johnson.

(Updates USD/JPY levels, details on SNB hiking cycle.)

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